- AUD/USD attracts some buying on Wednesday, but lacks bullish conviction.
- The pullback in US bond yields appears to cap the dollar and offer some support for the pair.
- Recession fears and Fed expectations favor dollar bulls and limit the pair’s gains.
The pair AUD/USD it reverses an intraday drop to levels below 0.6900 and is back close to the upper end of its daily range during the early part of the European session. However, the pair lacks follow-on buying and is currently trading with modest intraday losses, around the 0.6915-0.6920 region.
The US dollar trims some of its intraday gains and turns out to be a key factor offering some support to the AUD/USD pair. A softer tone around US Treasury yields appears to weigh on the USD, although Fed expectations should cap the downside. Aside from this, market caution could benefit the safe-haven dollar and help limit any significant rise in the currency.
Market participants seem convinced that the Federal Reserve will continue to tighten monetary policy to control inflation and have been pricing in at least a 50 basis point rate hike at the September FOMC meeting. This, coupled with headwinds stemming from COVID-19 lockdowns in China, adds to concerns of a global economic downturn. Recession fear weighs on investor sentiment and should act as a headwind for the risk-sensitive Aussie.
However, the slide looks muted, at least for now, as investors may prefer to wait for a hard-line message from Fed Chairman Jerome Powell at the Jackson Hole symposium on Friday. Powell’s speech will be sought for clues about a 75 basis point rate hike in September, which will influence dollar price dynamics.
Meanwhile, traders could follow Wednesday’s US economic docket, with Durable Goods Orders and Pending Home Sales data due later in the early American session. This coupled with US bond yields and broader risk sentiment will fuel USD demand and provide some lift to the AUD/USD pair.
Technical levels
Source: Fx Street
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